Sanity Check

JohnRo

edited from original post ...still a work in progress

This first post has been altered a few times as I wanted to use it for development and reference so I've killed off the original introduction. I just want to say sincerely, thanks to everyone who has and may still contribute, I've read all posts with great interest, more than once, and I feel they've helped me to form a more balanced sense of what I want from this venture and how to try and achieve it.

Thank you all.

My attitude to risk within this portfolio is "I don't really care what happens", that said what I really mean is that I want to take some risks and hopefully reap the reward, I want to see growth and the heavy focus on income funds is intended only to provide investment flexibility with existing and future allocation requirements, I aim to - at least try to - be sensible about it.

Developed Markets Equity Allocation : 40% (Large cap 20%, Small cap 20%)

Index Tracker Fund
5% - Euro Large Cap - Vanguard FTSE Dev. Eur ex-U.K. Equity Index Fund Inc
2% - Jap Large Cap - Vanguard Jap Stock Index Fund Inc
5% - Pacific ex Jap Large Cap - Vanguard Pacific ex-Jap Stock Index Fund Inc
4% - UK Large Cap –
- Vanguard FTSE U.K. Equity Index Fund Inc
- Vanguard FTSE U.K. Equity Income Index Fund Inc
4% - US Large Cap - Vanguard U.S. Equity Index Fund Inc
6% - Global Small Cap - Vanguard Global Small-Cap Index Fund Inc
Managed Fund
5% - Euro Small Cap – Threadneedle European Smaller Companies C1 Inc
2% - Jap Small Cap – M&G Japan Smaller Companies A Inc
2% - UK Small Cap – Cazenove UK Smaller Companies A Inc
5% - US Small Cap – F&C US Smaller Companies 1 Inc

Global Emerging Markets Equity Allocation : 30% (Large cap 10%, Small cap 20%)

Index Tracker Fund
10% - EM Large Cap - Vanguard Emerging Markets Stock Index Fund Inc
Managed Fund
10% - EM Small Cap – Aberdeen Global Asian Smaller Companies D2 GBP Acc
10% - EM Small Cap – Aberdeen Global EM Smaller Companies D2 GBP Acc

Bond / Money Markets : 14% (Investment Grade 2%, High Yield 12%)

Index Tracker Fund
0% - Vanguard UK Investment Grade Bond Index Inc – (on hold)
2% - Vanguard Global Bond Index Fund Inc
Managed Fund
2% - Invesco Perpetual Global Financial Capital R Inc
2% - Invesco Perpetual European High Yield Bond Inc
4% - Kames High Yield Bond A Inc
4% - Threadneedle Emerging Market Bond Z Inc

Specialist Markets : 16% (Property 8%, Commodities etc. 8%)

Index Tracker Fund
4% - Blackrock Global Property Securities Equity Tracker A Acc
Managed Fund
4% - First State Asian Property Securities Equity Inc
2% - First State Global Resources A Acc
2% - AXA Framlington Biotech R Inc
2% - AXA Framlington Global Technology R Inc
2% - AXA Framlington Health R Inc

Index Tracking Fund Performance

Managed Equity Performance

Bond & Money Market Performance



All constructive input and opinion most welcome. ta.

westy22

I don't think that there is anything glaringly wrong with your allocation structure - if that is what you believe to be best. For my personal taste, I think that 10% UK is too light and 20% Global Emerging is too heavy; and I prefer my bonds to be within the US or Europe - but I don't know anything more than anyone else!

JohnRo

westy22 wrote: »

I don't think that there is anything glaringly wrong with your allocation structure - if that is what you believe to be best. For my personal taste, I think that 10% UK is too light and 20% Global Emerging is too heavy; and I prefer my bonds to be within the US or Europe - but I don't know anything more than anyone else!

I have deliberately gone heavy on emerging, if anything I've reigned in my temptation to go even heavier in to emerging markets. My risk attitude, if not the allocation, definitely leans towards adventurous for this portfolio, perhaps a little less so for my overall wealth, but as above, I don't want to be reckless or "stupid" about it either.

I'd be interested what others have to say about the UK equity weighting, I just see the US as a larger market and perhaps less likely to be affected by the euro debt crisis which is far from over and set to resurface at some point.

The bonds may well end up being predominantly UK based given the fund choices available.

westy22

I wasn't suggesting that more UK and less EM was any less adventurous - in fact, one could argue that a higher UK allocation is very adventurous.

I just happen to believe that, for next few years or so, the US and the UK will outperform the Global and EM markets as I think that whilst we slowly recover the other world markets will be feeling the pinch of the last 3 years filtering through their economies.

I can see that you are a fan of Vanguard, as I am, and would point you towards their allocations for their LifeStrategy 80% fund https://www.vanguard.co.uk/documents/portal/factsheets/lifeStrategy80_equity.pdf

Jegersmart

If this is long term and your risk appetite is high I would try to avoid over-diversification. Try to identify a few areas where you think there could be capital appreciation and go in a bit heavy. Things to look at could be India (has performed quite badly in general for a whil enow), Mining/Natrual Resources funds have been battered in general for a while but prices seem to be basing, Russia has been dropping but have joined WTO and are trying to take steps to make things more transparent, P/E ratio of sub 5 but are quite sensitive to oil prices.

Whatever you choose is up to you, look for areas and assets that have been sold off but may offer future opportunities.

Currently I would avoid putting any further cash into UK, Europe and US as indices are starting to look quite toppy.

All imho ofc.

J

grey_gym_sock

reducing diversification (while sticking mostly to equities) will increase risk all right, but will it increase returns? only if you can call which markets will do relatively well. it's another form of the whole active vs passive investing debate.

JohnRo

westy22 wrote: »

I can see that you are a fan of Vanguard, as I am, and would point you towards their allocations for their LifeStrategy 80% fund https://www.vanguard.co.uk/documents/portal/factsheets/lifeStrategy80_equity.pdf

I have looked at these in some detail previously and decided I'd prefer the flexibility of having separate regional index funds as it allows some flexibility with monthly contribution and dividend money as regarding allocation or deciding to hold cash and pay it forward to when prices look better value.

Jegersmart wrote: »

If this is long term and your risk appetite is high I would try to avoid over-diversification. Try to identify a few areas where you think there could be capital appreciation and go in a bit heavy. Things to look at could be India (has performed quite badly in general for a whil enow), Mining/Natrual Resources funds have been battered in general for a while but prices seem to be basing, Russia has been dropping but have joined WTO and are trying to take steps to make things more transparent, P/E ratio of sub 5 but are quite sensitive to oil prices.

Whatever you choose is up to you, look for areas and assets that have been sold off but may offer future opportunities.

Currently I would avoid putting any further cash into UK, Europe and US as indices are starting to look quite toppy.

All imho ofc.

J

All very pertinent points, I've been looking specifically at industrial metal etfs lately but my enthusiasm is tempered by emerging markets beginning to feel the negative effects of exported inflation from the developed nations whose economies are flat lining even if QE is lifting equity prices. I do already have an investment in JPM natural resources.

Definitely agree developed market indices looking toppy as you describe, then again QE is going to keep them that way for some time and they're still the best part of 15-20% off recent historic peaks, it's a dilemma as to when entry is best.

For this ISA I was just looking at laying some reasonably solid foundations initially with the transferred lump sum but I take on board and agree with what you're saying. The monthly contributions should keep me busy looking for where any potential opportunities lie.

grey_gym_sock wrote: »

reducing diversification (while sticking mostly to equities) will increase risk all right, but will it increase returns? only if you can call which markets will do relatively well. it's another form of the whole active vs passive investing debate.

Indeed

cuphalfempty

I personally find other peoples folios very interesting, and people regularly seem to post theirs for discussion/critique.

Despite the fact that everyone obviously has different objectives, and it is inappropriate to make any specific recommendations, I thought it might not be a bad idea to have a Folio discussion sticky.

Jegersmart

grey_gym_sock wrote: »

reducing diversification (while sticking mostly to equities) will increase risk all right, but will it increase returns? only if you can call which markets will do relatively well. it's another form of the whole active vs passive investing debate.

Well that depends on the situation. If the markets you are looking at are at highs and struggling to make further gains then I would not be committing further funds or allocation at that time - that time is when one takes profits and start to allocate away and lock in profits. Whether one goes to cash or corporate bonds or whatever and over which period of time is a personal choice.

I agree though that if one is not capable or interested in making decisions one self then by all means just decide on a general strategy and let it be and hope that it works out at the end.

My intention is to counter the seemingly standard suggestion given which seems to be that a lot of diversification is desirable all the time. In my experience it is in fact *not* desirable most of the time (depending on the timescales of the investment), although as I very rarely cut allocations entirely and go all in somewhere else it does mean that I sometimes pass through a balanced approach as I shift focus more or less incrementally.

I should point out that some of my ISA's are allocated more conservatively than my SIPP but may follow the same general directions depending on the situation.

All imho, and I am only making the non-diversification point to add balance (ironically perhaps) to the thread, in my mind this is not a passive versus active discussion - and I won't be taking part in one if it ensues (That has been done to death already).

HTH

J

JohnRo

List of likely candidates for this portfolio, still a work in progress as you'll soon notice. I've tried to set a 0.5% TER as an upper limit for making it on to the list, with a few obvious exceptions.
Just listed here for those who may find some interest or entertainment value in it, and for my own reference. Will keep editing it.

Final selections are underlined in red, based on trustnet performance plots, dealing cost comparisons of £1000 chunks and the all important TER considerations.

..any comments and suggested alternatives most welcome as always.

Developed Equity UK (5%) reduced from 10%
http://www.trustnet.com/Tools/PDFViewer.aspx?url=ChartingPDF.aspx%3Fcodes%3DFITIUKD,FFPC8,F0YNC,FFPC6,F0YNB,FG1XE,FG5C9,XE:UKE%26color%3DD69701,FFB81B,8ED400,008D00,00C2B1,327EBE,AC0481,FF0000%26hide%3D%26span%3D60%26reinvested%3Dwithout%26bid%3DofferToBid%26retValue%3DreturnPercentage%26PortfolioName%3DSelect%20a%20Portfolio%26Currency%3DGBP

- Vanguard® FTSE 100 ETF (VUKE) 0.10% TER
- SPDR® FTSE UK All Share ETF 0.30% TER
- SPDR® S&P® UK Dividend Aristocrats ETF 0.30% TER
- iShares FTSE UK Dividend Plus (IUKD) 0.40 TER
- HSBC FTSE 100 ETF (HUKX) 0.35% TER
- Vanguard® FTSE U.K. Equity Index Fund Inc. 0.15% TER (0.5% buy 0% sell)
- Vanguard® FTSE U.K. Equity Income Index Fund 0.25% TER

Developed Equity Euro (10%)
http://www.trustnet.com/Tools/PDFViewer.aspx?url=ChartingPDF.aspx%3Fcodes%3DF0YN5,FFPD2,FKFE2,FB4P9,FGRU9,FGUX2,F05TE%26color%3DD69701,327EBE,FFB81B,008D00,FF0000,8ED400,00C2B1%26hide%3D%26span%3D60%26reinvested%3Dwithout%26bid%3DofferToBid%26retValue%3DreturnPercentage%26PortfolioName%3DSelect%20a%20Portfolio%26Currency%3DGBP

- SPDR® MSCI EuropeSM ETF 0.30% TER
- SPDR® S&P® Euro Dividend Aristocrats ETF 0.30% TER
- iShares MSCI Europe ex-UK (IEUX) 0.40% TER
- HSBC MSCI EUROPE ETF (HMEU) 0.30% TER
- HSBC EURO STOXX 50 ETF (H50E) 0.15% TER
- Vanguard® FTSE Developed Europe ex-U.K. Equity Index Fund Inc. 0.25% TER (0% buy/sell)

Developed Equity US (10%) reduced from 15%
http://www.trustnet.com/Tools/PDFViewer.aspx?url=ChartingPDF.aspx%3Fcodes%3DFFPD4,FB4P2,FG22Q,F10I5,FKFE5,FKFE3,F0KLL%26color%3DD69701,00C2B1,FFB81B,FF0000,008D00,8ED400,327EBE%26hide%3D%26span%3D60%26reinvested%3Dwithout%26bid%3DofferToBid%26retValue%3DreturnPercentage%26PortfolioName%3DSelect%20a%20Portfolio%26Currency%3DGBP

- Vanguard® S&P 500 ETF (VUSA) 0.09% TER
- HSBC S&P 500 ETF (HSPX) 0.09% TER
- HSBC MSCI USA ETF (HMUS) 0.30% TER
- iShares MSCI North America (INAA) 0.40% TER
- SPDR® S&P® 500 ETF 0.15% TER
- SPDR® S&P® US Dividend Aristocrats ETF 0.35% TER
- Vanguard® U.S. Equity Index Fund Inc. 0.20% TER (0% buy/sell)

Developed Equity Japan (5%)
http://www.trustnet.com/Tools/PDFViewer.aspx?url=ChartingPDF.aspx%3Fcodes%3DFFPE3,NWIJPN,FB280,FCPJI,FIYU9%26color%3D008D00,327EBE,FFB81B,FF0000,8ED400%26hide%3D%26span%3D60%26reinvested%3Dwithout%26bid%3DofferToBid%26retValue%3DreturnPercentage%26PortfolioName%3DSelect%20a%20Portfolio%26Currency%3DGBP

- iShares MSCI Japan (IJPN) 0.59% TER
- HSBC MSCI JAPAN ETF (HMJP) 0.40% TER
- HSBC FTSE Japan Index Fund 0.29% TER
- Vanguard® Japan Stock Index Fund Inc. 0.30% TER (0% buy/sell)

Developed Equity Pacific ex Japan (5%)

- HSBC MSCI PACIFIC ex JAPAN ETF (HMXJ) 0.40% TER
-
- Vanguard® Pacific ex-Japan Stock Index Fund Inc. 0.30% TER (0.1% buy 0% sell)

Developed Equity Global small cap (5%) dominated by US/Jpn/UK small caps

- Vanguard® Global Small-Cap Index Fund Inc. 0.40% TER (0% buy/sell)

Emerging Equity Global (30%)

- Vanguard® FTSE Emerging Markets ETF (VFEM) 0.45% TER
- HSBC MSCI EMERGING MARKETS ETF (HMEF) 0.60% TER
- Vanguard® Emerging Markets Stock Index Fund Inc. 0.55% TER (0.25% buy/sell)

Bond Markets High Yield (20%)

- Vanguard® UK Investment Grade Bond Index Inc. GBP 0.20% TER (0.75% buy 0% sell)

Bond Markets Global Blend (10%)

- Vanguard® UK Government Bond ETF (VGOV) 0.12% TER
- Vanguard® UK Government Bond Index Fund Inc 0.15% TER (0.1% buy 0% sell)
- Vanguard® U.K. Long Duration Gilt Index Fund Inc 0.15% TER
- Vanguard® Global Bond Index Fund Inc. 0.25% TER (0.2% buy 0% sell)

Specialist Markets Property (0%) postponed

- HSBC FTSE EPRA/NAREIT DEVELOPED ETF (HPRO) 0.40% TER

Specialist Markets Commodities (0%) postponed

- iShares S&P GSCI Dynamic Roll Industrial Metals Swap (SDRM) 0.40% TER
(synthetic)


I've decided to hold the lump sum within the ISA as cash and continue to feed in monthly with a booster from the cash pool, any imminent price falls can then be minimised and used to average down costs. I'll just look on the lost interest as being paid forward into snaffling any unit cost reductions. Here's hoping for more market turmoil

sorcerer

that's a lot of stuff to keep track off, I personally only have about 10 in my ISA, and even that is sometimes difficult to monitor.